10/31. The U.S.
Court of Appeals (DCCir) issued its
opinion
[PDF] in CFA v. FCC. The
Consumer Federation of America (CFA) filed an appeal of the
Federal Communications Commission's (FCC)
order approving the merger of AT&T and Comcast, and a petition for review of an
order in the merger proceeding denying a motion brought by the CFA. The Appeals
Court dismissed the petition and affirmed the order approving the merger.
However, the Appeals Court held that the CFA had standing to challenge the
merger order, even though this was a license transfer proceeding to which the
CFA was not a party, because it has a member who consumes cable services.

The CFA, a Washington DC based interest group, and others, requested that the
FCC place in the record of the merger proceeding (nominally, a license transfer
proceeding) an agreement between AT&T and Time Warner, Inc. that established the
terms by which Time Warner's AOL subsidiary would provide internet service to
customers of the merged firm. The FCC did not place it in the record.

In November of 2002 the FCC conditionally approved the merger of AT&T and
Comcast. See,
Memorandum Opinion and Order [108 pages in PDF], adopted on November 13, and
released on November 14. See also, story titled "FCC Releases AT&T Comcast
Order" in TLJ Daily
E-Mail Alert No. 550, November 15, 2002.

Just prior to approving the merger, the FCC released an
Order [PDF] denying the motion of the CFA and
Earthlink to require that AT&T and
Comcast file with the FCC copies of several documents, including the AOL ISP
agreement. See, story titled "FCC Does Not Require AT&T and Comcast to Publicly
Disclose ISP Agreement With AOL" in
TLJ Daily E-Mail
Alert No. 544, November 7, 2002.

Ruling on Procedural Issues. The CFA asserted standing to challenge the merger
order based on the affidavit of its Research Director and member, Mark Cooper.
He stated that he subscribed to Comcast cable service, and had contemplated
purchasing Comcast's high-speed internet service, but did not because of his inability
to choose his ISP and because of restrictions on access to content.

The Appeals Court ruled the CFA has
standing to challenge the merger order. Based upon the affidavit of Cooper,
there is injury in fact, and that the injury can be traced to the FCC order.

The Court wrote that "This injury to Cooper may also be fairly
traced to the Commission’s order. When an agency order permits a third-party to
engage in conduct that allegedly injures a person, the person has satisfied the
causation aspect of the standing analysis. ... The Consumer Federation had
requested the Commission to condition the merger on a commitment from AT&T
Comcast to allow unaffiliated ISPs access to its cable system and to refrain
from interfering with content. In rejecting these demands, the Commission’s
order permitted the practices to exist. This is enough to attribute Comcast’s
conduct to the Commission for standing purposes. It follows that the injury is
also redressable."

The Appeals Court held that the motion
order was not a final order, and therefore not subject to a petition for review.
But, this is of little consequence, because the motion order can be reviewed as
part of the judicial review of the merger order.

Ruling on the Merits. The Appeals Court summarized the argument of the CFA as follows.
The FCC "could not have properly completed its public interest review without
first examining the AOL ISP Agreement. Their theory focuses on the allegation
that several terms in the Agreement are unfavorable to AOL -- particularly the
restriction on streaming video. According to the groups, the fact that AOL
agreed to these terms demonstrates that AT&T Comcast would have substantial
market power in the residential broadband market and that it is likely to use
that power to interfere with users’ access to content. Therefore, the Commission
should not have approved the license transfers without taking this danger into
account, and it could not fully evaluate the danger without examining the AOL
ISP Agreement."

The Court continued that the FCC "has initiated a rulemaking
proceeding to deal with these issues on an industry-wide basis" and its
"decision not to address them in this particular case is consistent with its
broad discretion to choose between rulemaking and adjudication."

The Court concluded that "the consumer groups have the right to
try to persuade the Commission to change its policy and condition the merger on
open access for unaffiliated ISPs. If they needed the AOL ISP Agreement to make
that argument, perhaps the Commission would have erred in excluding it. But the
groups’ Petition to Deny fully explicated the case for open access without ever
referring to the AOL ISP Agreement, let alone indicating that its exclusion
hampered their ability to make their case. In fact, at oral argument, the groups
could not point to one argument that the Commission's decision to exclude the
Agreement prevented them from making. Similarly, the Commission rejected the
groups' arguments without regard to the contents of the AOL ISP Agreement. Thus,
the decision to exclude the Agreement from the record could not have affected
the outcome of the proceeding. It was at worst harmless error."

This case is Consumer Federation of America v. FCC and USA, respondents/appellees,
AT&T Corporation, et al., intervenors, Nos. 02-1337 and 02-1347. The
FCC proceeding is titled "In the matter of Applications for Consent to the
Transfer of Control of Licenses from Comcast Corporation and AT&T Corp.,
Transferors, to AT&T Comcast Corporation, Transferee". It is MB Docket No.
02-70.

Commerce Department Releases Third Quarter
GDP Data

10/30. The Department of Commerce's (DOC) Bureau
of Economic Analysis (BEA) released
gross domestic product and related data for the third quarter of 2003. The data
shows that investment in computers and peripheral equipment has been growing at
an annual rate of 35% for the past two quarters. In addition, it shows that
investment in software has been growing at an annual rate of just over 4% for
the past two quarters. See, BEA
data release.

The economy as a whole grew at an annual rate of 7.2% in the third quarter.
This is the largest quarterly increase in 19 years.

The gross domestic product (GDP) is the the output of goods and services produced
by labor and property located in the United States. Table 1 below sets out GDP for the
third quarter of 2002 through the third quarter of 2003. These quarterly figures
are in billions of dollars, at annual rates, and seasonally adjusted. The final
row of Table 1 shows the percent change in the GDP, as measured in constant
dollars (that is, adjusted for inflation), at an annual rate.

Table 1

02-Q3

02-Q4

03-Q1

03-Q2

03-Q3

GDP (Current $)

10,506

10,589

10,688

10,803

11,038

GDP (96 $)

9,486

9,518

9,552

9,629

9,797

% Change

4.0

1.4

1.4

3.3

7.2

GDP is broken down into four categories: (1) personal consumption
expenditures, which was $7,766.5 Billion in the third quarter (in current
dollars, seasonally adjusted, at an annual rate), (2) gross private domestic
investment, which was $1,656 Billion, (3) net exports of goods and services,
which was -$488.6 Billion, and (4) government consumption expenditures and
gross investment, which was $2,104.5 Billion.

Within the second category, investment, there is a subcategory named equipment
and software. This, in turn, is made up of (1) information processing equipment &
software (IPE&S), (2) industrial equipment, (3) transportation equipment, and
(4) other. IPE&S,
in turn, is made up of (1) computers & peripheral equipment (C&PE), (2)
software, and (3) other. Table 2 below sets out data for certain of these
categories for the third quarter of 2002 through the third quarter of 2003.
These quarterly figures are in billions of dollars, at annual rates, and
seasonally adjusted. These figures are also in constant (1996) dollars.

Table 2

02-Q3

02-Q4

03-Q1

03-Q2

03-Q3

E&S (96 dollars)

977.2

992.1

979.9

999.5

1,036.0

IPE&S (96 $)

575.2

579.7

594.5

620.7

647.3

C&PE (96 $)

297.6

303.2

319.1

354.9

390.3

Software (96 $)

189.4

190.3

192.5

196.8

201.3

What the just released data reveals is that investment in software grew
modestly in the third quarter (4.5% at a seasonally adjusted annual rate), and
has grown modestly in the last year. However, investment in computers and
peripheral equipment grew at an astounding rate in the third quarter (35.4% at a
seasonally adjusted annual rate), and it grew 35.8% in the second quarter
(seasonally adjusted annual rate).

Measured in constant (1996) dollars, the overall economy grew from $9629.4
Billion (seasonally adjusted annual rate in the second quarter) to $9797.2
Billion in the third quarter, or 167.8 Billion. Investment in computer &
peripheral equipment grew from $354.9 Billion to $390.3 Billion, or $35.4 Billion,
when measured in constant (1996) dollars (seasonally adjusted annual rate). Thus,
C&PE made up a large proportion of overall growth, when constant dollars are
used. However, this is a statistical oddity.

To obtain more realistic growth rates, the BEA uses constant dollars. This excludes
price inflation from the calculation of growth. And specifically,
the BEA calculates growth rates, and the dollar amounts of growth in each
category by using 1996 dollars. So, for example, the GDP in the third quarter in
current dollars, at a seasonally adjusted annual rate, was $11,038.4 Billion,
while in 1996 dollars it was less -- $9,797.2 Billion.

However, in the case of computers, prices have not climbed. Technology has
advanced, and prices have dropped dramatically. So, for the third quarter,
investment in computer & peripheral equipment was $88.3 Billion, at a seasonally
adjusted annual rate, when measured in current dollars. This was up from $82.4
Billion in the second quarter, for an increase of $5.9 Billion. But, when the
BEA expressed these current dollar figures in 1996 dollars, taking into
consideration the measured negative inflation of computer prices, the BEA
calculated the third quarter investment in computers and peripheral equipment to
be $390.3 Billion at a seasonally adjusted annual rate. This was up from $354.9
Billion in the second quarter, for an increase of $35.4 Billion.

This does not alter the conclusion that the percentage growth in investment
in computers and peripheral equipment has been very large. It does, however,
provide the argument that the estimate for the percentage growth in GDP in the
third quarter is a little overstated.

Secretary of Commerce Donald Evans stated in a
release that "We're growing the American economy and soon we'll be growing
more jobs. Today's strong performance shows the American economy is headed in
the right direction thanks to President Bush's Jobs and Growth Agenda. By
creating the conditions for greater economic growth, President Bush is setting
our country on the right track towards helping all Americans find work. While we
are encouraged by these numbers, the President will not rest until there are
enough jobs for every American worker."

GAO Reports on LOCAL TV Act

10/31. The General Accounting Office (GAO)
released a report [PDF]
titled "Local TV Act: Progress Made, but Timeliness and Cost Accounting Issues
Need to be Addressed". The Congress passed this Act to create a loan guarantee
program intended to facilitate access to local television stations' signals. The
report states that the program is not being implemented expeditiously.

The Launching Our Communities' Access to Local Television Act of 2000 (or
LOCAL TV Act) was originally a stand alone bill -- S 2097 -- in the 106th Congress.
However, it was enacted by the passage of HR 4942, which in turn, incorporated
HR 5548, the Departments of Commerce, Justice, and State, the Judiciary, and Related
Agencies Appropriations Act, 2001. And this bill, in turn, included as Title X,
the LOCAL TV Act. It is now Public Law No. 106-553.

The LOCAL TV Act created the Local Television Loan Guarantee Program and established
the Local Television Loan Guarantee Board to
approve guaranteed loans, totaling no more than $1.25 Billion, to finance
projects that will provide access to local TV station signals, on a technology
neutral basis, to households with limited
over-the-air TV broadcast signals or cable service.

While members of Congress might have understood that the program would apply
to satellite service providers, it was drafted in a technology neutral manner,
thus allowing internet based services to qualify.

The report concludes that "The LOCAL TV
Program has not been established in an expeditious fashion as specified by the
Act. Given that funds were appropriated in November 2001, thus starting the
clock on the 120 days allowed for completing program regulations and
underwriting criteria, the Program should have been ready for implementation by
March 2002. According to Board and RUS officials, three factors contributed to
program delays: (1) initial uncertainties over program funding, (2) inadequate
dedicated staff resources for program activities, and (3) the decision to issue
a proposed rule. As of the end of August 2003, neither of these key documents,
which provide the overall framework for the Program, was ready for
implementation, thus delaying lending activities and ultimately, realization of
improved television reception in target areas throughout the United States."

10/31. President Bush announced his intent to nominate Samuel Bodman (at right) to
be Deputy Secretary of the Treasury, the number two position at the
Department of the Treasury. He had
previously nominated Susan Schwab for this position. She withdrew from
consideration. Bodman is currently Deputy Secretary of Commerce. See, White
House
release. Bodman is an former MIT professor turned financier.

10/31. President Bush announced his intent to nominate Brian Roseboro to
be Under Secretary of the Treasury for Domestic Finance. He is currently acting Under
Secretary of the Treasury for Domestic Finance.
Bush had previously nominated Kenneth Leet for this position. See, White House
release.

The
Republican Whip Notice
states that "no votes are expected in the House" on Monday. The Congressional
Record states that the House is adjourned until Tuesday, November 4.

The Senate will meet at 11:00 AM. It will begin consideration of the
Conference Report to accompany
HR 3289,
the FY2004 Emergency Supplemental Appropriations for Iraq and Afghanistan
Bill. It will then begin consideration of
the Conference Report to accompany
HR 2691,
the FY2004 Department of the Interior and Related Agencies Appropriations
Bill.

Deadline to submit comments to the Federal
Communications Commission (FCC) regarding its
Fourth Notice of Proposed Rulemaking [49 pages in PDF] in which it
proposes to make spectrum available to federal users that will be displaced
from the 1710-1850 MHz band to make it available for advanced wireless
services. See,
notice in the Federal Register September 2, 2003, Vol. 68, No. 169, at
Pages 52156 - 52168. See, also stories titled "FCC Releases NPRM Regarding
Allocating Spectrum to DOD to Replace Spectrum Allocated for 3G Services" in
TLJ Daily E-Mail
Alert No. 694, July 9, 2003, and "FCC Sets Deadlines for Comments
Regarding Spectrum Reallocations Relating to 3G Services" in TLJ Daily E-Mail
Alert No. 731, September 3, 2003. This is ET Docket No. 00-258 and WT Docket
No. 02-8.

Deadline to submit reply comments to the
Federal Communications
Commission (FCC) regarding the portion of the FCC's
triennial review order [576 pages in PDF] that contains a notice of proposed
rulemaking [NPRM] regarding
modifications to the FCC's rules implementing
47 U.S.C. § 252(i),
which requires local exchange carriers (LECs) to make available to other
telecommunications carriers interconnection agreements approved under Section
252. See,
notice in the Federal Register, September 2, 2003, Vol. 68, No. 169, at
Pages 52307 - 52312, and September 2 FCC
release
[3 pages in PDF]. The Federal Register notice states that the reply comment
deadline is October 23. However, the FCC release states that this was in
error.

Tuesday, November 4

The House will meet at 12:30 PM for morning
hour and at 2:00 PM for
legislative business. Votes will be postponed until 6:30 PM. The House will
consider many items under suspension of the rules, including
HR 2898,
the "E-911 Implementation Act of 2003". See,
Republican Whip Notice.

9:30 AM. The U.S. Court of Appeals
(DCCir) will hear oral argument in U.S. v. Microsoft and State
of New York v. Microsoft, Nos. 03-5030 and 02-7155. This will be an en banc
argument. Location: Courtroom 20, 333 Constitution Ave. NW.

The Trade Policy Staff Committee (TPSC) will hold a hearing on
negotiations with Bahrain on a free trade agreement (FTA). The TPSC seeks
comments and testimony to assist the Office of
the U.S. Trade Representative (USTR) on many topics, including "Relevant
trade-related intellectual property rights issues that should be addressed in
the negotiations" and "Existing barriers to trade in services between the
United States and Bahrain that should be addressed in the negotiations". See,
notice in the Federal Register, August 25, 2003, Vol. 68, No. 164, at
Pages 51062 - 51064.

9:30 AM. The
House Commerce Committee's Subcommittee on
Telecommunications and the Internet will hold a hearing titled "Computer
Viruses: The Disease, the Detection and the Prescription for Protection".
The hearing will be webcast. Press contact: Ken Johnson or Jon Tripp at 202
225-5735. Location: Room 2123, Rayburn Building.

3:00 - 5:30 PM. The Department of Justice's (DOJ)
Antitrust Division (ATR) will host a
ceremony and reception commemorating the 100th anniversary of the appointment
of the first Assistant Attorney General (AAG) with antitrust responsibilities.
AAG Hewitt Pate will speak.
In addition, the ATR will give an award to Judge
Richard Posner of
the U.S. Court of Appeals (7thCir). The
DOJ has stated both that the event is open to current and former ATR employees only,
and that "Media interested in attending the event should contact, in advance,
Luke Macaulay, Office of Public Affairs, 202-514-2007." See, ATR
notice, OPA
notice,
and ATR
notice of Posner award. Location: Great Hall,
DOJ Main.

10/31. The Department of Commerce's Bureau
of Industry and Security (BIS) announced that on November 19, there will be
another meeting of the public to private component U.S. India High Technology
Cooperation Group (HTCG). This meeting will be held at the Hotel Leela
Palace in Bangalore, India. Then, on November 20, there will be a government to
government meeting in New Dehli, India. See,
invitation letter [PDF] and
response form [PDF].

10/31. President Bush signed
HJRes 75,
which provides FY 2004 appropriations for continuing projects and activities of
the federal government through Friday, November 7, 2003. See, White House
release.

10/31. The U.S. District Court (SDNY)
issued an order in SEC v. Bear Stearns and related proceedings
approving the $1.4 Billion global settlement of the
Securities and Exchange Commission's (SEC)
enforcement actions against ten investment firms and two individuals alleging
undue influence of investment banking interests on securities research at
brokerage firms. See, SEC
release.

10/31. The Department of the Treasury announced that Pam Olson,
the Assistant Secretary for Tax Policy, will be the luncheon speaker on Tuesday,
November 4 at the 19th Annual High Technology Tax Institute, at the Crowne Plaza
Cabana Hotel in Palo, Alto, California.

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